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Information on effects of default on credit card

If I were to default on my credit card payments, will there be any adverse affect to my current mortgage loans?

If I were to default on my credit card payments, will there be any adverse affect to my current mortgage loans? First, I'm a cosigner for my son's home, and the second is my motor home loan through my bank.

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For credit card accounts that remain unpaid, the first 180 days involve what could be termed normal collections. The delinquent cardholder can expect to receive letters, phone calls and other similar methods requesting that they pay what is owed on their credit card.

After the first 180 days have passed, the credit card account charges off. That means that although the cardholder continues to owe the money, for accounting purposes, the debt becomes considered a bad debt.

When the debt becomes a bad debt, the credit card user can expect to have negative marks on their credit report resulting in a bad credit history. Additionally, responsibility for collecting the debt can shift from the credit card issuer to an outside firm or an attorney. This is when a debt collection agency may get in touch with you.

After the debt goes unpaid for some time, the cardholder may eventually receive a court summons. The court will be asked to grant judgment in favor of the credit card issuer.

Beyond that point, the cardholder may get hit with wage garnishment, property liens and more. While these are going on, the cardholder's fees will continue to mount. The credit card bill continues to grow as their credit score continue to fall.

Assuming all this sounds like something you'd rather read about than experience firsthand, be sure to stay on top of your monthly credit card payments. If you cannot afford to make at least a minimum payment, interest charges and fees could mean that your bill gets out of control very quickly.

In your case, in the initial period of default, your two other loans will not be affected as far as their interest rates are concerned. But if the credit card delinquency persists for more than 180 days then my only concern would be the home loan that you co-signed for your son, the creditors might start to make collection calls to your son just because they see that you are a co-signer there.

Credit card debts are unsecured, meaning that the creditors do not have a collateral property to fall back on in case of your default, which also is the reason that the credit card's interest rates vary. Mortgages on the other hand are secured loans, and usually have a fixed rate of interest for the entire term of the loan.

Your default on one credit card will definitely increase the rates on your other credit cards. This is because, buried in the fine print of your agreement is a clause called "Universal Default", which simply means that if the creditor perceives a payment risk from you they have the right to jack up their interest rates.

I hope this information helps you Find. Learn & Save.

Best,

Bill

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33 Comments

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  • MJ
    Apr, 2011
    Melody
    Brownsville, TX
    I have had arrangements to pay 50.00 a month arrangement with collections and now the arrangement is over and the collections know that i am poor, having epilepsy and neurolgical issues they keep harrassing me with phone calls and when I answer no one is there. I called the collections and they refuse to put me back on the old arrangement that I had. I am disabled fixed income and I have very little money. It is ridiculous to charge me a 51.27 interest rate and 25.00 late fee when I can only afford to pay 50.00 a month to pay it down. I am really stressed. I just got out of the hospital and they keep changing their terms when they feel like it. I will not pay people who emotionally abuse me.
    3 Votes

  • JD
    Jan, 2011
    Jim
    Ralston, NE
    Once in default status when will the credit card company stop charging you interest? Would it be cheaper in the long run after defaulting to just pay what you can afford each month instead of paying a little while an obscene amount of interest is charged?
    0 Votes

    • BA
      Jan, 2011
      Bill
      When an account goes into default status, it continues to accrue interest. Usually, creditors reduce the interest rate from the default rate that they started charging when your account first fell into bad standing, once the account is charged off. If a creditor obtains a court judgment for you to repay a debt, the interest continues to accrue at a rate that is based on the rules of your state of residence. If you default on an account, it is not just up to you to choose to pay what you can afford. If you do not work out some solution with your creditor, they can sue you. If the creditor wins a suit against you, the judgment could end up with your wages being garnished. Make an effort to work out some solution with your creditor on your own or contact a debt settlement company or bankruptcy attorney, to research your options.
      0 Votes

  • BA
    Mar, 2010
    Bill
    Review your loan documents to determine whether your bank has the right to change the terms on one loan if you default on another. What are you looking for is often called a "right of offset."
    0 Votes

  • 35x35
    Mar, 2010
    mark
    I have a credit card through the same bank as my truck loan. Layoff situation.Can't barely make min due payments.If I were to go chapter 7 to discharge my credit card, Would anything happend to my truck loan at the same bank after it was reafirmed, such as interest rate jump etc ?
    0 Votes

  • BA
    Feb, 2010
    Bill
    Linda: I have a reading assignment for you. First, you need an overview of the collections process. Read the Bills.com resource Collections Advice. Next, you need to understand how you may not be responsible for the debt because of the amount of time that has passed. This is called the statute of limitations. We discuss this in Charge-Off & Credit Report. Finally, I want you to read about the liability you may have for your ex-spouse's debt. Bear with me because the title of what I want you to read may sound misleading: Is My Spouse Liable for My Credit Card Debt? The perspective of the last article is reversed from your situation, but the concepts are the same nevertheless. The answers to your questions (and other questions you should also be asking) are answered in the three Ask Bill resources I just mentioned.
    0 Votes

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